“Third quarter GDP growth likely came in at a weak +0.2%, barely improving from +0.1% in 2Q,” says lead analyst Chua Hak Bin in a note on Wednesday.
Chua assigns a “low 20% possibility” to Singapore slipping into a technical recession in 3Q, which would mean MAS likely to take on “a more aggressive move” such as easing to a neutral bias with zero S$NEER appreciation.
The Singapore dollar nominal effective exchange rate, or S$NEER, is the trade-weighted basket of currencies against the Singapore dollar, which has been a key policy tool for MAS.
See: Economists expect easing of exchange rates as Singapore fights off technical recession
For now, on expectations of a “narrow escape” from a technical recession in 3Q, Chua expects MAS will likely reduce the slope of the S$NEER “slightly” from the current +1% appreciation path to +0.5%, but keep the width and centre of the policy band unchanged.
Still, Singapore’s economic outlook is far from rosy in the near-term.
Chua says the manufacturing sector is expected to remain in recession, recording a third consecutive negative quarter in 3Q, while trade-related sectors such as wholesale trade and transport & storage might worsen.
On the other hand, he says strength will likely be seen in the financial sector, as well as tourism-related and business services sectors. Construction growth is also likely strengthen in 3Q, even as service growth remain resilient.
Meanwhile, Singapore’s core inflation fell to a 3-year low in July and August, on the back of declining utilities cost.
“We expect core inflation (ex-private transport & accommodation) to remain soft, averaging +1.2% in 2019 (vs. +1.7% in 2018). Headline inflation is expected to average +0.7% in 2019 (vs. +0.4% in 2018), supported by the low base effects of COE prices,” Chua says.
At the same time, the economist adds that a softening job market is cooling wage cost pressures.
“The Manpower Group’s Employment Outlook Survey for 4Q is the most pessimistic in 2 years,” Chua notes. “The labour market is weakening, with employment rising by just 5,500 in 2Q19 (compared to 13,400 in 1Q19).”
